Somalia

Years

Targets and attainment

Classification

1974-80

currency fixed to USD from December 1973, central bank sets and adjusts at intervals rates and spreads for other major currencies (cross rates sometimes broken); previous mainly foreign-owned banking system nationalised and reorganised 1970-1, leaving two commercial banks (later merged) which lend mainly to SOEs (including state import agencies), and development bank which lends to private sector; central bank relies on quantitative and selective credit controls, plus interest rate changes (occasional before 1979, then more frequent), no money or government securities markets, budget deficits financed (net of external funds) by central bank (de jure limits not always observed, tightened 1981); development planning, with increasing range and scope of controls; Ogaden War 1977-8; widening premium from 1977 on parallel forex market; statistics very weak, no national accounts 

augmented exchange rate fix AERF

1981-90

1981 stabilisation + structural reform programme; 1981-3 efforts to attract savings of Somali emigrant workers; rediscounting by central bank becomes more important; variety of dual and reunified exchange rate arrangements, floating and (automatically or discretely) adjusted, with or without auction system,  until reunification on overvalued fixed parity with USD late 1987, followed by fiscal and monetary expansion; much of 1980s civil war; mid-1988 large devaluation and move to basket peg with weekly inflation differential adjustments that facilitate repeated depreciations, while deficits and monetary growth remain high; parallel market rate always well below official; 1990 accelerating depreciations to bring official rate closer to falling parallel rate; efforts to salvage increasingly fragile financial system; statistical data better but still weak

loosely structured discretion LSD

1991-2023

[Note: no Article IV reports between February 1991 and July 2015, no statistical data available for 1991-2012]

1991 government brought down by coalition of opposition groups, secession of Somaliland; armed conflicts between different groups for rest of period, with large internal and external population displacements, while international interventions ineffective; 1994 Bank of Somaliland issues own currency; 1998 secession of Puntland; central (but not regional) government and central bank cease to function, banking system loses public confidence; high degree (c. 95%) of dollarisation, also mobile phone transactions in USD; in absence of new note issues by central bank, large amounts of counterfeit 1000 Somali shilling notes (worth c. $0.05) circulate widely despite being known to be counterfeit; Federal Government of Somalia (covering five, later seven, Federal Member States) set up late 2012, though security situation still poor, and embarks on rebuilding state institutions and economy, including efforts to rebuild institutional capacity in central bank, which lacks skilled personnel and has no effective monetary instruments, but also payments system, tax administration and public financial management, and collection of statistics; central bank preparations for currency reform, starting with replacement of counterfeit notes, given expectation of continued dollarisation and float of Somali shilling; ongoing reforms including work on currency reform and on governance and transparency of central bank; some growth of underdeveloped financial sector, supervision of banks and mobile money operators; 2020 Covid-19 plus natural disasters, policy response helped by external assistance; de facto dollarisation remains very high, with Somali shilling banknotes (mostly counterfeit) used only for small retail transactions; central bank does not operate monetary or exchange rate policy; as of 2024 central bank has no instruments and no policy (so MPF cannot be LSD), while dollarisation is de facto and not formalised (so it is not UASC); work on monetary and exchange rate frameworks to be implemented after coming currency reform, IMF argues for currency board; statistical data improved by end of period but still very weak

unstructured discretion UD